Brazil economy likely slowed to near-halt in first quarter

BRASILIA (Reuters) - Brazil’s economy probably slowed to a near halt in the first quarter as investments slowed and factories cut back on production, burying hopes that a surprise rebound in late 2013 could turn into a steady recovery.

Dilma Rousseff, President of Brazil, delivers a speech at the Brazil Infrastructure Opportunity event in New York, September 25, 2013. REUTERS/Chip East

Gross domestic product probably grew just 0.2 percent in January through March from the fourth quarter of last year, slowing from 0.7 percent expansion in the prior reading, according to the median of 27 forecasts in the poll.

A contraction is not out of the cards, with forecasts in the poll ranging from -0.2 percent to 0.6 percent.

Brazil’s growth has come in starts and stops since 2011 despite countless stimulus measures by President Dilma Rousseff, prompting fears of a long period of stagnation for an economy that was among the world’s most dynamic not long ago.

“Economic activity is slowing fast. We expect first-quarter GDP growth to be around zero, and the reading of the following quarter to be negative,” said Mauricio Molan, chief Brazil economist at Banco Santander.

Double-digit interest rates and sagging business confidence have added recently to a long list of problems including stubbornly high inflation and inadequate infrastructure. This probably prompted many factories such as those of automobile producers to reduce output, economists said.

Investments also slowed to a crawl in the first quarter after a surprise burst in late 2013. According to Credit Suisse’s estimates, capital spending grew just 0.5 percent from a year earlier, down from 5.5 percent in the fourth quarter.

With industrial confidence down to the lowest since 2009 and consumer spending showing signs of moderation, chances are Brazil’s growth will be weak throughout the year. The median of 51 estimates in the poll projects growth at 1.7 percent this year, down from 2.3 percent in 2013.

Finance Minister Guido Mantega has a more optimistic forecast of 2.3 percent growth for 2014. He expects growth to accelerate in 2015 and 2016 as big road and airport projects auctioned off by the government since last year gain speed.

Brazil’s statistics agency IBGE will release first quarter GDP data on Friday, May 30, at 9:00 a.m. (1200 GMT). Economists expect 2013 numbers to be revised as well, probably upwards, after a recent methodology change in the industrial output series.

From the same period a year ago, Brazil’s economy probably grew 2.1 percent, according to the median of 25 estimates in the poll.

A separate poll on Friday showed Brazil’s central bank will probably stop raising interest rates next week but inflation will likely remain high, which could continue to hurt business and consumer sentiment. <BR/INT>